You Don't Mess With The Milton

The University of Chicago's plan to honor Milton Friedman by naming a new research institute for him has proven controversial. The Times reports that the university president is being petitioned to convene the faculty to discuss the issue:

More than 100 professors signed the petition, declaring that they were “disturbed by the ideological and disciplinary preference implied by the university’s massive support for the economic and political doctrines that have extended from Friedman’s work,” and the implication that Chicago’s faculty “lacks intellectual and ideological diversity.”

Outside the economics profession, Friedman is probably best known for his evangelism on behalf of free market ideology, so it is understandable why some might raise objections. To which professional economists - especially those of us who do not share Friedman's opinions - should respond: "yes, but... Milton Friedman really was a great economist who made some very important contributions that left a lasting impact and helped shape our understanding of how the economy works."

That was, in part, what I think Paul Krugman was trying to do in his essay "Who Was Milton Friedman?" which appeared in the New York Review of Books in Feburary, 2007 (Friedman died in November, 2006). Writing for an audience presumably aware of (and, likely, not fond of) Friedman as an anti-government public intellectual, but not trained in economics, Krugman explained some of Friedman's important theoretical insights, while also criticizing some of his ideas.

In assessing Friedman, Krugman tried to separate the good from the bad:

Milton Friedman played three roles in the intellectual life of the twentieth century. There was Friedman the economist's economist, who wrote technical, more or less apolitical analyses of consumer behavior and inflation. There was Friedman the policy entrepreneur, who spent decades campaigning on behalf of the policy known as monetarism—finally seeing the Federal Reserve and the Bank of England adopt his doctrine at the end of the 1970s, only to abandon it as unworkable a few years later. Finally, there was Friedman the ideologue, the great popularizer of free-market doctrine.

Did the same man play all these roles? Yes and no. All three roles were informed by Friedman's faith in the classical verities of free-market economics. Moreover, Friedman's effectiveness as a popularizer and propagandist rested in part on his well-deserved reputation as a profound economic theorist. But there's an important difference between the rigor of his work as a professional economist and the looser, sometimes questionable logic of his pronouncements as a public intellectual. While Friedman's theoretical work is universally admired by professional economists, there's much more ambivalence about his policy pronouncements and especially his popularizing. And it must be said that there were some serious questions about his intellectual honesty when he was speaking to the mass public.

Krugman explains the significance of Friedman's most enduring intellectual contributions on consumption theory and the relationship (or lack thereof) between inflation and unemployment. He is more critical on Friedman's "monetarist" doctrine that monetary policy should be on autopilot, following a rule of growing the money supply at a constant rate. The "questions about his intellectual honesty" come from Friedman's explanations of the Great Depression. There is little doubt that the Federal Reserve failed to act properly, but Krugman argues that Friedman was misleading in suggesting that the Fed caused the depression.

In the conclusion he wrote:

In the long run, great men are remembered for their strengths, not their weaknesses, and Milton Friedman was a very great man indeed—a man of intellectual courage who was one of the most important economic thinkers of all time, and possibly the most brilliant communicator of economic ideas to the general public that ever lived. But there's a good case for arguing that Friedmanism, in the end, went too far, both as a doctrine and in its practical applications.

Krugman made some sharp criticisms, but the essay is far from a hatchet job, and the appreciation for Friedman's brilliance and his contributions to economic theory is clearly genuine. Or so I thought...

Edward Nelson and Anna Schwartz apparently didn't think so, offering a letter to the editor criticizing Krugman's essay. The word limit of the NYRB's letters section evidently was too tight a constraint on their anger at Krugman, so they wrote a longer piece "The Impact of Milton Friedman on Modern Monetary Economics: Setting the Record Straight on Paul Krugman's 'Who Was Milton Friedman?'" I was taken aback by this when I first saw it, and quite surprised to see it again in the latest Journal of Monetary Economics, the top academic journal focused on macroeconomics (it is also posted here, if you don't have access to the JME).

Nelson and Schwartz write:

To some readers, Krugman's willingness to praise Friedman despite these accusations might indicate that his essay is balanced; but to us, it shows the degree to which the essay consists of doubletalk. Krugman's accusations constitute such fundamental criticisms that, if accurate, they should be sufficient to rule out a favourable conclusion about Friedman. Specifically: How can he say Friedman was a great economist and a great man, if he believes Friedman to have been intellectually dishonest? Or that Friedman was a man of courage, if he misled people?

So one must come to a "favorable" or "unfavorable" conclusion about Friedman - be a friend or an enemy - and any opinions that are nuanced, mixed or ambivalent can only be "doubletalk"?

The article goes on to enumerate what Nelson and Schwartz believe to be "misstatements" by Krugman and dig up some contradictions. Can you believe that Krugman, in 1993, referred to Friedman's 1953 paper on the case for floating exchange rates as "seminal" and yet did not mention it in the NYRB essay? Nelson and Schwartz also dredge up quotations from 1960's Keynesians James Tobin, Paul Samuelson, Arthur Okun, Walter Heller and Gardner Ackley which seem rather beside the point (although perhaps the point is Friedman was always and everywhere right, and his opponents were always and everywhere wrong). Much of the argument seems really to hang on semantics - whether the Fed's failure to take action in the depression are a "cause," and what, precisely, constitutes "monetarism."

They conclude:

Paul Krugman is a respected trade theorist. But he does not speak authoritatively on subjects on which he has no expertise. Monetary economics is not his field of expertise. Krugman's research background does not qualify him as an authority on Milton Friedman's work. Krugman's scholarly publications rarely mentioned Friedman and, when they did, they acknowledged the contributions of Friedman and monetarism in a way that contradicts his essay on Friedman. Friedman's reputation is intact despite Krugman's deplorable efforts to denigrate him and his contributions.

The JME published a short response by Krugman. I suspect what he was really thinking was: "jeez." But that - even for academic bigwigs like Krugman - won't get published in the JME. Instead, Krugman briefly addressed some of the points about the depression and about monetarism before concluding:

Professional economists rarely have a critical word for Milton Friedman's legacy. The current exchange explains why: Friedman's defenders make life very unpleasant for anyone who points out the great man's failings...

Its a tribute to the importance of Friedman's work that questions about his legacy bear so directly on contemporary policy issues. But for that reason it's also important not to engage in hagiography. Friedman was a great economist, but like every other great economist in history, he was also wrong about some important things.

The tone of Nelson and Schwartz's essay reflects, I think, an earlier era - well before my time - when macroeconomics was much more intensely political. In his short intellectual history, "The Macroeconomist as Scientist and Engineer," Greg Mankiw discusses some of the arguments of the 1970's and 1980's. Writing of an exchange between Robert Solow and Robert Lucas, Mankiw said: "Such vitriol among intellectual giants attracts attention, much in the way that the patrons in a bar gather around a fistfight, egging on the participants. But it was not healthy for the field of macroeconomics." Fortunately, "as the older generation of protagonists has retired or neared retirement, it has been replaced by a younger generation of macroeconomists who have adopted a culture of greater civility."

Update (7/24): Having pondered this a little more, I might add: I am not an expert on the ins and outs of all the internecine macro fights of the 1960's and 1970's, but I suspect a reasonable argument could be made that Krugman understated Friedman's importance. I believe that is, in part, what Nelson and Schwartz were trying to say, but their vituperation distracts from the substance of the argument (at least to this reader).